Retirement Solutions that Place Employee Financial Well-Being First

Retirement Solutions that Place Employee Financial Well-Being First

The State of American Retirement

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The State of American Retirement​

Did you know that there are around 60 million hardworking Americans who don't have access to retirement plans through their jobs? That’s 40% of the workforce! As you can see, there’s a significant gap in retirement plan access in America. Despite the federal government’s multiple attempts to address the issue by enacting legislation designed to reduce barriers and provide incentives to encourage retirement plan adoption by small businesses - the retirement plan access "gap" persists.  

In fact, research from the Center for Retirement Research at Boston College reveals that approximately 50% of all private-sector workers in the United States are provided access to workplace retirement savings programs. This difference has led State and local governments to express concerns regarding an impending "retirement crisis" and has prompted them to actively explore solutions to bridge this gap - including mandating that every private employer sponsor a payroll-deduct retirement savings program for their employees.

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Current State of Retirement Programs

70% of Medium-Large Businesses ​
(more than 100 employees) offer a workplace 401(k) plan

Only 27% of Small-Medium Businesses ​
(less than 100 employees) offer a 401(k) plan

working Americans lack a workplace savings account​

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Future State of Retirement Programs

SMBs will be forced to create workplace retirement savings programs:​

  • 1.1 MILLION by 2025​
  • 2.4 MILLION by 2027

A nationwide mandate for SMBs to offer a workplace retirement savings program​

Nevertheless, this is a government mandate we can and should all support!

In fact, 19 states have already enacted legislation requiring that every private employer offer a workplace retirement savings program for their employees, and an additional 28 states are currently exploring similar measures or have introduced legislation to create state-sponsored retirement programs. As a result, there are essentially two types of programs being created: Mandatory Programs & Voluntary Programs

The Emergence of State Auto-IRA Mandates

State-sponsored retirement programs exhibit significant variations beyond their mandatory versus voluntary nature. The majority of these programs revolve around a payroll-deduct Roth IRA (after-tax), ensuring the automatic enrollment of all eligible employees, commonly known as "Auto-IRA."

Typically, businesses that have operated for a minimum of 2 years and employ a specific number of individuals, usually 5+, are obligated to establish a program within a specified timeframe. However, it is important to note that business owners have limited influence over the design of their individual plans, as these programs follow a standardized, one-size-fits-all approach.

A state-sponsored Auto-IRA program is a minimalistic retirement option (i.e., better than nothing), but it generally lacks the inherent flexibility and control business owners have come to expect.

State’s Progress Mandating Retirement Savings Programs for SMBs & Individuals​

Voluntary Retirement Savings Programs

  • Hawaii
  • New Mexico
  • Massachusetts
  • Missouri
  • Washington

State-Mandated Retirement Savings Programs

  • California
  • Colorado
  • Connecticut
  • Delaware
  • Illinois
  • Maine
  • Maryland
  • Minnesota
  • Nevada
  • New Jersey
  • New York
  • Oregon
  • Vermont
  • Virginia
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*Currently, there are 24 states working on creating mandated retirement savings programs, while the 18 above have passed legislation or have active programs.

What is the Secure 2.0 Act of 2022?

The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act was signed into law at the end of 2022, bringing many current and future enhancements to qualified retirement plans. The new provisions are intended to enable employers, the federal government, and the retirement plan industry to collaboratively work to close the retirement plan access gap among small businesses and help more working Americans to save. 

There are now three distinct tax credits available to small business owners for plan fees and/or contributions paid by employers, which were initially implemented in the original SECURE Act and have since been significantly enhanced under the newly enacted SECURE Act 2.0.

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Start-up Tax Credits

Originally created by the SECURE Act and enhanced under SECURE 2.0, an eligible employer may now claim up to 100% of its qualified administrative costs for adopting and maintaining a new 401(k) plan.

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Employer Contribution Tax Credits

SECURE 2.0 also created a new tax credit for employer contributions provided by small businesses! To receive this credit, a business must still abide by the eligible employer restrictions described under the above startup tax credits section.

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Automatic Enrollment Tax Credit

Small businesses are also eligible for a flat annual tax credit of $500/year for implementing an automatic enrollment feature to their new or existing 401(k) plan. To be eligible for this tax credit, the auto-enrollment feature must meet Eligible Automatic Contribution Arrangement (EACA) requirements. Additionally, the auto-enrollment tax credit is available to existing 401(k) plans and profit-sharing plans, adding a 401(k) feature.

Note: The auto-enrollment tax credit became much more relevant due to the fact that the majority of all 401(k) plans will be required to adopt an auto-enrollment feature by 2025.

The SECURE 2.0 Act Background​

In 2019, Congress passed the “original” Setting Every Community Up for Retirement Enhancement Act (aka “The SECURE Act”). The law was designed to entice small businesses to install workplace retirement savings programs and encouraged business owners to automatically enroll their employees.

Then in 2022, with the enactment of The SECURE Act 2.0, the original “start-up” tax credits were significantly enhanced, and additional tax incentives were created to encourage employer contributions.

Why Was The SECURE 2.0 Act Signed Into Law?

Encourage the adoption of employer retirement savings plans​.
Provide small business tax credits for 401(k) plan adoption.
After 2024, require every employee to be auto-enrolled.
Provide incentives for private-sector employees to save more​.

What Tax Credits Does SECURE 2.0 Provide?​

Employers with
Phased out for 51-100 employees​
Reduced by 2% per employee
Employers with
1:1 Tax Credits​
100% of “out of pocket” costs​
Maximum of $5,000/year​
3 years following plan installation​
Employers with
1:1 Tax Credits​
100% employer contributions​
Up to $1,000/year per employee​
5 years after plan establishment​

How much can the tax credits reduce the cost of a new 401k plan?

Year 1
Year 2
Year 3
Automatic Enrollment
Number of Non-HCEs
Plan Establishment Fee
Annual Administration Fee
Start-Up Credit
Contribution Tax Credit
Contribution Tax Credit

Regulatory Comparison
to State-Mandated Auto-IRA​

Standard Features
Flexible Eligibility
Employee Contributions
Up to $6,500
Up to $15,500
Up to $22,500
After-Tax Contributions
Pre-Tax Contributions
Employer Contributions
Profit Sharing
Employee Matching
Employee Vesting
SECURE Tax Credits

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Frequently Asked Questions

What is the most common employer retirement plan?
The most common employer-sponsored retirement plan in the United States is the 401(k) plan. Here's why:
Key Features of a 401(k):
  • Employee-Funded: Employees choose to contribute a portion of their pre-tax salary into the plan.
  • Employer Matching: Many employers offer to match employee contributions up to a certain percentage, providing an even greater boost to retirement savings.
  • Tax Advantages: Contributions are made with pre-tax dollars, reducing taxable income. Investment growth within the plan is tax-deferred until you withdraw funds in retirement.
  • Investment Choices: 401(k) plans typically offer a range of investment options, allowing employees to tailor their portfolios to their risk tolerance and goals.
How do employer retirement plans work?
How Employer Sponsored Retirement Plans Work (General Principles)
  1. Contributions:
    • Employee Contributions: Employees can often choose to contribute a portion of their paycheck, usually pre-tax.
    • Employer Contributions: Many employers offer matching contributions up to a specific percentage of the employee's contributions. This is essentially "free money" for your retirement.
  2. Investment: The money contributed is invested in a variety of options like stocks, bonds, or mutual funds. Employees often have some control over how their money is invested.
  3. Tax Deferral or Tax-Deductible Benefits: Many plans offer the advantage of contributions being made with pre-tax dollars and investment growth being tax-deferred until withdrawal. Some plans (like Roth 401(k)s) have different tax rules.
  4. Withdrawal in Retirement: Funds are withdrawn in retirement to provide income. There are generally rules about when you can start withdrawing funds without penalty.
How many employees should a company have to offer 401k?
There is no federal law mandating that companies of any size offer a 401(k) plan. However, here's what you need to consider:
  • State Mandates: Several states have laws requiring employers with a certain number of employees to offer a retirement savings plan. For example, Colorado requires employers with 5 or more employees to offer a plan. You'll need to check your specific state's regulations.
  • Business Size: While not legally required, offering a 401(k) plan can be a valuable benefit to attract and retain employees, even for small businesses.
  • Simplified options: Plans like the SIMPLE 401(k) are specifically designed for smaller businesses, making them easier to set up and administer.
It's important to research your state laws and consider the potential benefits of offering a retirement plan regardless of company size.